Address by the Vice-Governor Luís Máximo dos Santos at the opening session of the Seminar on Bank Resolution with the Central Banks of Portuguese-speaking countries
1. Good morning. Welcome to Lisbon and to Banco de Portugal.
Let me begin by thanking all the participants in the Seminar on Bank Resolution that takes place today and tomorrow morning.
I extend a special welcome to our colleagues from the central banks of Angola, Brazil, Cabo Verde, Mozambique, São Tomé and Príncipe and Timor-Leste, as well as Marc Dobler and João Leite, of the International Monetary Fund and European Central Bank, respectively, who work in crisis management.
Allow me also to highlight that this Seminar is part of the close cooperation that we have with the Central Banks of the Portuguese-speaking countries (BCPLP), and has been a strategic priority for Banco de Portugal for a long time, permanently renewed for the greater good. In fact, this is the first initiative wholly dedicated to bank resolution in the context of BCPLP cooperation, thus bestowing it with a very special meaning.
To all, our warmest thanks for your presence. Finally, allow me a word of thanks to those at Banco de Portugal who made this event possible, with particular emphasis on the Resolution and International Relations Departments, the heads of which I thank for the dedicated and meticulous way they committed themselves to the initiative.
These reasons would be more than enough for me to gladly join you here, but I must add another: my personal enthusiasm for issues of resolution, for the themes we are going to discuss here in conceptual as well as in real terms.
2. The law governing bank resolution was introduced in Portugal in 2012 by way of Decree-Law 31-A/2012 of 10 February 2012, in compliance with the commitments made under the Economic and Financial Assistance Programme to Portugal, signed between the Government of Portugal on the one hand, and the European Union (Commission), the European Central Bank and the International Monetary Fund on the other, and was on the statute book from 17 May 2011 to 30 June 2014.
The resolution regime was therefore created before the publication of Directive 2014/59/EU of the European Parliament and of the Council of 15 May 2014 establishing a framework for the recovery and resolution of credit institutions and investment firms, transposed into Portuguese law by Law No 23-A/2015 of 26 March 2015.
In 2012, it had not been envisaged that the regime created would be applied as quickly and intensely as actually occurred.
In fact, on 3 August 2014, Banco de Portugal was obliged to apply, in defence of financial stability, a resolution measure to Banco Espírito Santo S.A. and, on 20 December 2015, deliberated the application of resolution measures to Banif – Banco Internacional do Funchal, S.A., likewise to safeguard financial stability.
They were very different resolution measures in their origin and conception, applied to banks with very different weights and roles in the context of the Portuguese financial system.
The application of these measures meant an unprecedented effort for Banco de Portugal, which mobilised the whole bank, but the team of what is today the Resolution Department was a (if not the) fundamental pillar.
One of the scheduled presentations will focus on these two cases, which will certainly come up as well during the discussion of other topics, such is the diversity and complexity of the problems they raised.
It may well be said that in terms of bank resolution, Banco de Portugal – and particularly the Resolution Department – have certainly learned from experience. This Seminar is an occasion to share this learning and enrich ourselves through the diversity of your experiences and perspectives.
3. The creation of the banking union was a fundamental element in the European Union’s strategy to respond to the succession of crises that began 10 years ago. But it is incomplete, and that creates serious asymmetries and risks.
In fact, the Single Supervisory Mechanism (SSM) has operated since November 2014. The Single Resolution Mechanism (SRM) has operated fully since 1 January 2016. Banco de Portugal participates in both as national competent authority. However, the projected third pillar of the European banking union – the creation of a common deposit guarantee scheme – is in practice still waiting for a political agreement to enable it.
Therefore, unless the banking union is completed, many of its advantages will be hampered. More than that: it will create perverse effects that jeopardise – at least in part – the reasons for its creation.
The banking union is still not only incomplete, but also in need of consolidation, regardless of the form considered. Considering its newness and complexity, it is no surprise that it should be thus.
But there are questions that need to be addressed: will we be able to suitably articulate the operation of the SSM and the SRM, without prejudice to the necessary separation of each mission? Will we be able to pay attention to detail – and we know well that the detail is often decisive – and be able to see problems in a comprehensive and coherent way, especially when we look at the issue of non-performing loans and MREL requirements? Are we all aware of how important it is to affirm the principle of the primacy of law regardless of the occasion? Will the European and national authorities articulate in the best way possible, considering their competences? Will they be able to interpret their missions without ever losing sight of the beacon of the great objectives of the European Union?
We must never forget that behind the technicality of the questions are often hidden options of great importance and enormous impact.
4. In Portugal today, speaking about bank resolution is largely speaking about the European banking union. But the theme of resolution is as important for more developed economies as it is for emerging economies or less developed ones.
The pursuit of financial stability is a permanent task. And it is crucial to promoting economic development. As bank resolution is an instrument used to, in certain conditions, guarantee financial stability, its relevance is unrelated to the level of economic development and sophistication of financial systems.
The resolution of a bank is a measure to deal with financial institutions in serious crisis, and as a result, its impact cuts across financial systems. But a good legal framework for bank resolution cannot distance itself from the characteristics of the context in which it is applied.
5. The Seminar programme is very rich and diverse, covering a wide range of topics.
I therefore believe that the conditions have been met for this Seminar to encourage excellent debate on a theme of interest to us all which has a long way to progress, be it in theoretical terms or its practical implementation. I am certain that these two days will be very beneficial to all. And I hope they will be two days well spent.
Thank you very much for your attention.